Private equity activity subdued despite industry optimism

John Bakie
26 April 2010

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European private equity remained subdued in early 2010 despite relative optimism over the economy, according to the unquoteт Private Equity Barometer.

The Barometer, produced in association with Candover, suggests the market was flat compared to Q4 2009, with deal volume down 3.8% to 226, while value increased just 2.6% to €10.5bn.

While the New Year has so far failed to produce a boom in activity, 2010 got off to a far better start than 2009, with the total value of investments increasing almost threefold compared to the same period a year ago.

Buyout activity has been static for the past three quarters, but has made a vast improvement since markets bottomed at the peak of the financial crisis. Compared with this time last year, volume is up 47% while value increased by a staggering 369%.

The mid-market proved to be the major driver, with deal values broadly increasing in the €100m to €1bn range. These buyouts contributed €6.6bn to the overall total.

Small-cap deals were less prolific, with volume falling 18% o 51 transaction, while value dropped 19% to €1.5bn.

Expansion investments bucked the trend, with an 8% increase in activity in the first quarter. However, growth capital investments were particularly scarce in the final quarter of 2009, and Q1 2010 activity remains lower than in both Q2 and Q3 of last year.

Venture deals continue to struggle despite positive industry and political rhetoric in the sector. Activity fell 13% in early 2010, while market value slipped 7% to €230m.

John Arney, managing director of Candover, said: "The key ingredients are in place for an increase in the pace of private equity realisations and new investments - most managers have funds which they are eager to put to work and for many businesses the trading outlook is more encouraging than at any point in the previous two years."

He believes the market remains tentative, and a sustained economic recovery will rely on consumers maintaining their spending habits in the face of tax hikes and lower government spending across Europe.